The Bitter Winter Of Real Estate Is Now A Popular Topic In Public Discourse

A report from the Epoch Times in China. “Throughout November, both property prices and transactions have maintained a downward slide in the Chinese cities Beijing, Shanghai, Guangzhou, Shanghai, and Shenzhen. Meanwhile, real estate developers have bought up less land, purchasing just 60 percent of the October total.”

“Data from the Centaline Property Research Center shows that by November 29, 2018 biddings for 282 properties in Chinese first and second-tier cities — or roughly speaking, all cities with a population of five million or more — had failed, while the number of failed bids in third and fourth-tier was 944. These are the worst numbers in the last six years.”

“China Business News quoted the Beike Institute and Anjuke Data Analysis on Dec. 1 as saying that that property prices in Beijing have decreased slightly in three consecutive months, while transaction volume of real estate has declined rapidly. The volume of new house purchases decreased 34.6 percent in October, and second-hand house transaction decreased 12.5 percent.”

“Even while benefiting from strong economic cooperation with Hong Kong, Shenzhen’s real estate market faces the same challenge as other Chinese cities. In the recent six months, the houses in foreclosure increased 50 percent, according to Guangan Juye, a Shenzhen Foreclosures Company.”

“There were 2,800 houses in foreclosure by November, 33 percent higher than last year. Furthermore, people bought homes originally valued at 7.5 million yuan for just 4.9 million yuan.”

“As reported by the official website of the Shenzhen Intermediate Court, there were 26 houses in foreclosure in October, but only 15 of them had been sold. In the auction, normally there were only two people quoted. The best case had five bidders, and in the worst case no price had been offered at all.”

“The ‘bitter winter’ of the real estate sector is now a popular topic in Chinese public discourse.”

From News.com.au in Australia. “As house price falls accelerate, a growing number of mortgage holders across the country are being left in the negative equity ‘prison.’ Borrowers in negative equity find themselves paying off mortgages for more than their properties are worth, unable to sell without being left with an outstanding debt to the bank, and potentially facing higher interest rates.”

“As forecasts grow darker for how much further the market has to fall, consensus is beginning to circle around the all-important 20 per cent, with 15 out of 21 economists and experts polled by Finder.com.au backing the figure.”

“This is the first time we’ve seen them agree with those kinds of figures,’ said Finder.com.au insights manager Graham Cooke. ‘The reason the 20 per cent figure is so crucial is most lenders require a 20 per cent deposit. If you borrow with a 20 per cent deposit and the price falls by 20 per cent, obviously you’re going to be in equity parity — any further and you’re going to be in negative equity. This is the first time we’ve seen decline forecasts starting to push into negative equity territory.'”

“Last month, a Roy Morgan survey of 10,000 borrowers found 8.9 per cent were slipping into negative equity — up from 8 per cent 12 months prior — which would work out to around 386,000 Australians.”

“Digital Finance Analytics founder Martin North estimates the figure is higher. ‘On my modelling currently there are around 400,000 households across the country in negative equity, both owner-occupiers and investors,’ he said. ‘There are about 3.25 million owner-occupier borrowers and 1.25 million investors, so around 10 per cent of properties are currently underwater.'”

“Mr North’s base case for the housing market is average falls of 20-25 per cent, which would push 650,000 households into negative equity. His worst-case scenario, which assumes an international crisis like another GFC, is for 40 per cent price falls.”

“‘Then you’re getting close to one million households,’ he said. ‘That would be catastrophic for the economy. That’s analogous to what happened in Ireland where prices dropped 40 per cent. A decade later, there are still people in negative equity who’ve never recovered.'”

“Mr North said negative equity was touching ‘lots of different segments’ of the market for different reasons, but collectively it was an ‘early warning sign’ for what was to come. People in Western Australia who bought at the peak of the mining boom, for example, have seen prices fall by about 15 per cent over the past five or six years.”

“At the other end, many enticed by first homebuyer grants who purchased in the past six to 12 months are now underwater, particularly because newly built properties are losing value faster that more established ones. ‘It’s like buying a new car, as soon as you drive it off the lot it drops about 15-20 per cent in value,’ Mr North said.”

“Then there are the highly leveraged property investors, often with overlapping mortgages. ‘Quite often we see investors with multiple properties all going underwater,’ he said. ‘That’s the real sharp end of this.'”

“Meanwhile, investors in places like Brisbane who purchased off-the-plan apartments 18 months ago are now being required to ‘pony up’ and complete the purchase, but the valuation is coming in at 15-20 per cent below the original price. ‘That will be a problem for people trying to settle because the banks might not lend them what they now owe,’ said Realestate.com.au chief economist Nerida Conisbee. ‘That could also be a problem for the developers.'”

“And it’s not just first homebuyers and investors — people living in expensive suburbs are also feeling the pinch, as prices are falling faster at the more expensive end of the market. ‘You’re seeing pockets of negative equity in places you wouldn’t expect to see it, like Bondi and Mosman in NSW and Toorak in Victoria,’ Mr North said. ‘There the more affluent households now suddenly find they’ve got issues too.'”

“‘As the risk profile on that loan goes up the banks will probably put some sort of risk premium on the loan, and we already know many households are struggling with repayments because of flat incomes and rising costs,’ Mr North said. ‘If you do sell, chances are you still have a loan remaining. History teaches us people stay put. It basically means you’re stuck, you’re a prisoner in your own property.'”

“If you are forced to sell, due to a change of circumstances such as the loss of a job, then you are in trouble. Australia has what’s known as ‘full recourse,’ meaning your debt stays with you regardless of your financial situation. ‘Unlike in the US where you can just hand the keys back and walk away, the banks have you by the short and curlies,’ Mr North said.”

‘There were 2,800 houses in foreclosure by November, 33 percent higher than last year. Furthermore, people bought homes originally valued at 7.5 million yuan for just 4.9 million yuan’

‘Then there are the highly leveraged property investors, often with overlapping mortgages. ‘Quite often we see investors with multiple properties all going underwater…That’s the real sharp end of this’

Oh dear…

BTW, I’ve been busy today getting ready to fly back to Arizona tomorrow. I’ll be back in full swing soon.

Oklahoma City-based Gateway Mortgage Group is closing eight retail outlets in California and laying off 25 employees “due to the complexities and uniqueness of the California market,” the company said.

“At Gateway Mortgage Group, we are continually evaluating all aspects of our business, our processes, the products we offer and the markets we serve,” said Scott Henley, executive vice president, in a statement.

“As part of our overall strategy for long-term growth and efficiency, we have elected to close our California branches.”

The company said it would still be active in California through its correspondent channel, however. Gateway also indicated it was growing elsewhere, opening 12 offices in eight states in the third quarter and a total of 35 offices in 2018. Gateway has added a total of 309 jobs year to date to employ 1,225 people, the company said.

Gateway is the latest mortgage company to announce layoffs in the wake of falling loan volumes and stiff competition for customers. JPMorgan Chase & Co., Movement Mortgage and Wells Fargo have all announced layoffs this fall.

“Finder.com.au insights manager Graham Cooke. ‘The reason the 20 per cent figure is so crucial is most lenders require a 20 per cent deposit. If you borrow with a 20 per cent deposit and the price falls by 20 per cent, obviously you’re going to be in equity parity — any further and you’re going to be in negative equity.”

I’m sure everyone put 20% down in cash! Not borrowing that money from their investment properties…

“At the other end, many enticed by first homebuyer grants who purchased in the past six to 12 months are now underwater, particularly because newly built properties are losing value faster that more established ones. ‘It’s like buying a new car, as soon as you drive it off the lot it drops about 15-20 per cent in value,’ Mr North said.”

Yes. Most often we are all just out for ourselves first. And as we learn after going out into the adult world, we are often the only ones even willing to do that.

What struck me as obviously stupid was the call by women for men to put themselves last and make themselves highly vulnerable to benefit (women), but with zero upside or benefit for themselves ( or their families for that matter ).. only risk.

So much for future housing demand. Young couples can neither afford houses nor kids to raise in them.

Declining US birth rate could beget lower public school enrollment, closures
By Jessica Campisi
Published Nov. 27, 2018
Dive Brief:
– The U.S. birth rate has dipped to an all-time low, and projections show a potentially grim effect on schools: The number of public school students could drop by 8.5% by 2028, according to The Hechinger Report.
– Schools across the country could close, and full-day kindergarten and publicly funded pre-K options could increase, notes Mike Griffith, a school finance specialist at think tank Education Commission of the States. Teachers could also see a smaller labor market, and rural areas would likely get hit the hardest.
– While the nation’s birth rate is declining, some districts may still see increases in enrollment, and it’s possible that immigration could balance out shrinking numbers. But more schools will likely close anyway, leaving districts to rely more heavily on resources like online courses but with even smaller budgets than before, Griffith told The Hechinger Report.
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Both men and women have built in firmware in their DNA that makes silent judgements of a woman based on her suitability for reproduction – i.e. youth and health/beauty. And that programming has worked it way into so many of our social conventions. No amount of legislation or ‘gender sensitivity’ classes is going to change it.

And that gets expressed in actions. Given a powerful and rich older man with two secretaries .. one 55 and the other 21, which one is more likely to have an affair with, or replace his current spouse with (most of the time)?

Conversely, all through human history, women who had youth and beauty were more often than not aware of it, how it was perceived, and how to use it for their own personal gain.

So a policy of not being seen with under 35 ladies is addressing the situation that is not only the biggest demographic risk for their behaving badly, but for others making incorrect assumptions that they are doing so, and the risk of false accusations or manipulation.

fastFT
US Treasury bonds
Treasuries rally takes yields through long-term support level
Peter Wells in New York 7 hours ago

The hefty rally in US Treasuries on Tuesday has dragged yields through a key level of long-term momentum for the first time in 13 months.

Renewed concerns about global growth, and recent speculation over whether the Federal Reserve may consider slowing the pace of interest rate rises next year have seen government bonds reverse a sell-off that had been in place for most of this year, notwithstanding a number of relief rallies.

The yield on the benchmark 10-year Treasury, sitting 9 basis points lower at 2.901 per cent in afternoon trade in New York. That took it to its lowest level since September and below its 200-day moving average of 2.9575 for the first time since November 7 last year.
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It passed with little fanfare, but the spread between the 2-year and 5-year Treasury notes went negative yesterday, the first inversion of the yield curve since 2007. Why wasn’t this the top headline in the financial media? Because the 2-year/5-year spread is much less widely followed than the 2-year/10-year spread. The 10-year U.S. Treasury note is the most liquid of the Treasuries and one of the most liquid securities in all of global markets and thus it the true benchmark for interest rate traders. The 5-year Treasury lies in what is known as the “belly” of the yield curve and attracts far fewer investor dollars than the 10-year.

So, breathe a sigh of relief if you will, but the 2/10 spread is currently a minuscule 13 basis points, and thus the margin for error for an upward-sloping yield curve is basically nonexistent.

Why does this matter? Well, a quick glance at Bloomberg’s excellent 2/5-year chart shows that a yield curve inversion from early 2000 to the beginning of 2001 set the stage for the tech bubble bursting, and a much longer period of inversion from the beginning of 2006 until mid-2007 was, in retrospect, a perfect predictor of the Crash of 2008-2009.
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Sound the alarms, man the battlements, and gird your loins for the next recession. The yield curve has inverted.

Anxious headlines blared the news across the financial media. The U.S. dollar dropped on Tuesday, spooked by recession fears, and the Dow Jones Industrial Average plunged a stomach-turning 800 points — making Tuesday one of the stock market’s worst days of 2018. “Bond king” and Doubleline CEO Jeffrey Gundlach declared that the “economy is poised to weaken.”

Okay, you’re probably wondering, what in God’s name is the yield curve? For that matter, what do you mean it “inverted?” Who cares? What does any of this have to do with a recession?

Glad you asked.

It’s actually simpler than it sounds.

…every so often, short-term yields will overtake long-term yields, which produces a negative spread. That’s when the yield curve “inverts.”

The reason everyone got excited was that the difference between 5-year and 2-year Treasuries and between 5-year and 3-year Treasuries both went negative on Monday. It was the first time either had inverted since 2007.

And if you look at the behavior of both spreads over time, you’ll probably notice why this made everyone nervous.

Every time the spreads have gone negative (fallen below the thick black line in the graph) a recession (the light gray areas) has followed soon thereafter. That’s true of both those spreads, and of the much more closely-watched 10-year versus 2-year spread. It’s also true of the 10-year versus 1-year spread, which has gone negative before every recession since at least 1957. It really is kind of like clockwork. On top of that, there are basically no false positives.
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(Bloomberg)—One section of the U.S. Treasuries yield curve just inverted for the first time in more than a decade.

The spread between 3- and 5-year yields fell to negative 0.6 basis points Monday, dropping below zero for the first time since 2007. It’s not the best-known measure of the curve. The 2- to 10-year gap is more closely watched as a potential indicator of pending recessions. But Monday’s move could be the first signal that the market is putting the Federal Reserve on notice that the end of its tightening cycle is approaching.

Some analysts attributed the short-end underperformance to demand for riskier assets as global trade tensions eased following this weekend’s tariff truce between U.S. President Donald Trump and China’s Xi Jinping. Others pinned it to modestly higher expectations for Fed hikes next year after the summit between the two leaders. Either way, the five-year is faring better because investors anticipate the end of the central bank’s hiking path beyond next year.

“The outright inversion could be reflective of the market pricing in some cuts starting in 2020, which may be helping the 5-year tenor outperform slightly,” said TD Securities rates strategist Gennadiy Goldberg.
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U.S. stocks on Tuesday are in free fall, just a day after equity benchmarks mounted a rally that took the Dow Jones Industrial Average to its best close in a month, following a trade-tension moratorium between the U.S. and China.

The Dow (DJIA, -3.10%) closed Tuesday down almost 800 points, or 3.1%, with the financial sector for the S&P 500 index (SPX, -3.24%) registering its worst daily slump since Feb. 8.

At least part of the downturn come amid an ominous narrowing in the spread between U.S. 10-year Treasury note and two-year Treasury note yield to the tightest gap, about 10 basis points, in about 11 years.

The rate spread between the 2-year and 10-year government — at around 10 basis points, or 0.10 percentage point, at its tightest — is closely followed because a narrowing gap indicates a dim outlook for the economy. A so-called yield-curve inversion, where the yield on shorter-dated debt rises above that of longer-dated bonds, has been a feature that has preceded every recession since 1975.
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Yesterday, a part of the yield curve inverted. The interest rate on 5-year treasuries fell slightly below the interest rate on three-year treasuries. This has spooked some people, because an inversion in the yield curve is sometimes regarded as the harbinger of a recession.

So, are we headed for a recession?

Campbell Harvey says no. He’s a finance professor at Duke, and the man who first demonstrated that the yield curve can act as a recession predictor. Today on the Indicator, he tells us why there’s no need to panic about a recession — or at least not yet.
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European government bond yields fell to multi-month lows Wednesday, following yesterday’s moves in U.S. Treasuries that have ignited concerns over the prospect of recession in the world’s largest economy, as investors continue to pull away from risk markets and test the Federal Reserve’s resolve on future interest rate hikes.

Benchmark 10-year German bund yields, a proxy for risk-free borrowing rates around the single currency area, fell to 0.25% in early Wednesday trading, the lowest in six months, taking the extra yield investors would earn to own U.S. Treasury notes instead to around 266 basis points. That spread could compel international investors to drive more cash into U.S. bond markets, lowering yields further and challenging the Fed’s stance that “gradual” rate hikes are still appropriate for a growing economy and a tight labor market.
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‘The reason the 20 per cent figure is so crucial is most lenders require a 20 per cent deposit. If you borrow with a 20 per cent deposit and the price falls by 20 per cent, obviously you’re going to be in equity parity — any further and you’re going to be in negative equity. This is the first time we’ve seen decline forecasts starting to push into negative equity territory.’

This explanation holds no water, whatsoever. Mr. Market doesn’t care one lick what sized downpayment previous buyers made. What matters is what kind of crazy appreciation that was driven by buyers financed at rates near zero, and the sobriety that constrains bids as interest rates revert towards historic normalcy.

For those missing the connection between the inverted Treasury yield curve and housing, it’s really simple: A yield curve inversion predicts a recession, and a recession portends a hard landing for housing. If you’ve ever played dominoes, you should have an idea of how this works.

Parts of the U.S. bond market are seeing short-dated yields push above their long-dated peers, a “warning sign” for the stock market as Wall Street’s economic expectations for 2019 deteriorate.

That’s what Oliver Jones, an analyst for Capital Economics, said in a recent note, as investors pay newfound attention to the yield curve, the spread between short-dated and long-dated yields. Jones and others are worried that if this gap continues to narrow, more losses will follow for the S&P 500 (SPX, -3.24%) which has already been retreating from its October highs.
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“As house price falls accelerate, a growing number of mortgage holders across the country are being left in the negative equity ‘prison.’ Borrowers in negative equity find themselves paying off mortgages for more than their properties are worth, unable to sell without being left with an outstanding debt to the bank, and potentially facing higher interest rates.”

The optimism that briefly turned Chinese assets into world’s best performers faded amid skepticism that there’s been any breakthrough with the U.S. on trade.

The Hang Seng China Enterprises Index fell 1.5 percent as of 2:17 p.m. in Hong Kong, tracking losses in U.S markets overnight after President Donald Trump called himself “Tariff Man” and questioned whether a deal with China was possible. China’s Ministry of Commerce issued a short statement Wednesday saying the weekend meeting between the two leaders in Buenos Aires was “very successful,” without adding new details.

Chinese government bonds climbed, with the 10-year yield falling 4 basis points to 3.30 percent, the lowest since March 2017.
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After the Fed reined in its hawkishness and Donald Trump eased trade pressures with China the market was supposed to be in good shape to take advantage of positive seasonality into the end of the year. Some pullbacks and profit taking were expected after the recent run but few were expecting the fast and furious selling that occurred today.

The losses were huge, breadth was terrible and the Russell 2000 ETF (IWM) suffered its biggest loss since 2011. Everything was taken apart with lone spot of green being gold-related stocks. Breadth was 5 to 1 negative and many stocks were bidless.

…what really drove the action today was a major shift in bonds.

We have not seen a move out of stocks and into bonds like we experienced today in a long time. The best way to see what happened is to compare the 3.2% loss in the S&P 500 to the 1.68% gain in the 20+ Year Treasure Bond Fund (TLT) . To complicate matters further is that the flows into bonds were uneven and caused short-term bonds to rally more than long bonds which caused an inverted yield curve.

These shifts accelerated massive reallocation by big hedge funds like Bridgewater which has over $120 billion in assets under management. They are buying bonds and dumping huge baskets of equities as they realign their risk. Whether stocks are cheap or expensive is not relevant and the news flow is secondary. It is just a strategic move that causes the average market player to think that the financial markets are crashing.
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“I have a tremendous contempt for this market…it cuts your heart out.
…It’s very hard to be very positive about the market, unless you’re an idiot.”

– Jim Cramer, November 26, 2018

“If you can keep your head when all about you are losing theirs…
Yours is the Earth and everything that’s in it.”

– Rudyard Kipling

Last Monday, Jim Cramer seemed to “lose it” on CNBC, saying, “I have a tremendous contempt for this market, because every time you try to make money with it, it cuts your heart out. That’s a bear market.”

The classic definition of a bear market is a 20% retreat from the previous peak in a major market index. The classic definition of a correction is a 10% decline. Cramer’s math is a little different. “Who cares about the S&P? It’s individual stocks that are down 40 or 50 percent.” Of course, some stocks are down 50%, but if some big-name stocks are down that much, other stocks are flat or even rising. It’s pure math. You can obsess with the stock that is down 50%, or the one that’s up 5%. That’s why we have indexes.

Cramer kept his emotions at “red-alert” levels, saying, “People come in and get their heads cut off. I just feel ashamed. It’s very hard to be very positive about the market unless you’re an idiot.” Well, call me an idiot. I don’t trade every day, or every week, or every month, and I don’t watch hyper-ventilating or emotional gurus who push buttons on the air an hour or more a day. But fast action seems to be what viewers want. Entertainment value lures more eyeballs, and that’s what advertisers will support.

In the week following Cramer’s rant, the Dow and NASDAQ rose over 5%. In fact, last week was the market’s best week in seven years. That doesn’t mean we’re out of the woods.
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After what was initially perceived to be a substantial step forward between the U.S. and China in trade talks over the weekend, the stock market, reflected by the S&P 500 Index (SPX, -3.24%) enjoyed a big increase Monday. Those gains have now been wiped out. The S&P 500 tumbled 3.2% Tuesday, the Dow Jones Industrial Average dropped 3.10%, and the Nasdaq Composite Index plunged 3.80%.
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